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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | 12. INCOME TAXES Income (loss) before income taxes and income tax expense (benefit) are as follows:
(In thousands) | 2023 |  | 2022 |  | 2021
Income (loss) before income taxes: |  |  |  |  |
Domestic | $ | (175,510) |  |  | $ | 3,259 |  |  | $ | 22,774 |
Foreign | 15,480 |  |  | 29,585 |  |  | 44,336 |
Total | $ | (160,030) |  |  | $ | 32,844 |  |  | $ | 67,110 |
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | 19 |  |  | $ | 2 |  |  | $ | 1,232 |
State | — |  |  | 772 |  |  | 764 |
Foreign | 1,954 |  |  | 3,071 |  |  | 13,521 |
Total | 1,973 |  |  | 3,845 |  |  | 15,517 |
Deferred income tax expense (benefit): |  |  |  |  |
Federal | (57,220) |  |  | 24 |  |  | (7,862) |
State | (280) |  |  | (537) |  |  | 125 |
Foreign | 1,402 |  |  | 1,057 |  |  | 1,504 |
Total | (56,098) |  |  | 544 |  |  | (6,233) |
Total income tax expense (benefit) | $ | (54,125) |  |  | $ | 4,389 |  |  | $ | 9,284 |
The significant differences between the U.S. federal statutory rate and the effective income tax rate are as follows:
| 2023 |  | 2022 |  | 2021
(In thousands, except percentages) | Amount | % |  | Amount | % |  | Amount | %
Income tax expense (benefit) at federal statutory rate | $ | (33,622) |  | 21.0 |  |  | $ | 6,882 |  | 21.0 |  |  | $ | 14,116 |  | 21.0 |
Stranded taxes released with termination of pension | (21,912) |  | 13.7 |  |  | — |  | — |  |  | — |  | — |
Changes in estimates related to prior year tax provision | (1,322) |  | 0.8 |  |  | (175) |  | (0.5) |  |  | (383) |  | (0.6) |
Brazilian tax incentive | (876) |  | 0.5 |  |  | (3,873) |  | (11.8) |  |  | (7,019) |  | (10.4) |
Research and development tax credit | (766) |  | 0.5 |  |  | (1,489) |  | (4.5) |  |  | (928) |  | (1.4) |
Tax on Prodepe tax incentive | (488) |  | 0.3 |  |  | (1,024) |  | (3.1) |  |  | 2,858 |  | 4.3 |
State taxes, net of federal income tax benefit | (437) |  | 0.3 |  |  | 48 |  | 0.1 |  |  | 933 |  | 1.4 |
Foreign currency translation variation on intercompany loans | — |  | — |  |  | — |  | — |  |  | 1,374 |  | 2.0 |
Dividend received deduction net of foreign withholding tax | — |  | — |  |  | — |  | — |  |  | (109) |  | (0.2) |
Foreign derived intangible income deduction | — |  | — |  |  | (763) |  | (2.3) |  |  | — |  | — |
Tax contingency accruals and tax settlements | 1 |  | — |  |  | 88 |  | 0.3 |  |  | 202 |  | 0.3 |
Changes in federal valuation allowance | 237 |  | (0.1) |  |  | — |  | — |  |  | (5,415) |  | (8.1) |
Non-deductible other | 594 |  | (0.4) |  |  | 381 |  | 1.2 |  |  | 1,053 |  | 1.6 |
Foreign rate differences | 1,746 |  | (1.1) |  |  | 2,924 |  | 8.9 |  |  | 8,269 |  | 12.3 |
U.S. tax on foreign branch income | 2,720 |  | (1.7) |  |  | 1,390 |  | 4.1 |  |  | (5,667) |  | (8.4) |
Income tax expense (benefit) at effective income tax rate | $ | (54,125) |  | 33.8 |  |  | $ | 4,389 |  | 13.4 |  |  | $ | 9,284 |  | 13.8 |
Provision (benefit) for income taxes for the year ended December 31, 2023 was $(54.1) million compared to $4.4 million for the year ended December 31, 2022. The effective tax rates for the years ended December 31, 2023 and 2022 were 33.8% and 13.4%, respectively. The change in effective tax rate is primarily attributed to tax benefits previously recorded in other comprehensive income (loss) that were released as a result of the pension plan termination, partially offset by a reduction in Brazilian tax incentives as a percentage of income. The stranded taxes released with the termination of the pension plan represent the effect of the change in federal and state tax rates on pension-related deferred tax items initially recorded in other comprehensive income. The related stranded taxes were released in full in 2023. The effective tax rate in 2022 was impacted by a large discrete benefit recorded in the first quarter of 2022, resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service (“IRS”) on January 4, 2022. These regulations overhauled various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. As the result of these regulations, future Brazilian income tax under Brazil tax law in place at that time would have been deductible, but not creditable, in the U.S. The accounting rules require a reduction of the U.S. deferred tax liability previously established related to anticipated future income from Brazil. The IRS released guidance in 2023 that provides temporary relief for tax years after 2021 from the regulations published by the U.S. Treasury and Internal Revenue Service on January 4, 2022. As a result of the IRS guidance released in 2023, the reduction in the first quarter of 2022 of the U.S. deferred tax liability previously established related to anticipated future income from Brazil was reversed in 2023. The effective tax rate in 2021 was impacted by the strong earnings of Terphane Ltda, which are included in Tredegar’s U.S. consolidated tax return and, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current U.S. tax rate of 21%, the benefit of tax incentives in Brazil and the release of the valuation allowance for capital loss carryforwards. Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However; Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Because of the accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of December 31, 2023 and 2022. The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income). The incentives were originally granted for a 10-year period commencing January 1, 2015 and expiring at the end of 2024. Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax incentives was $0.9 million, $3.9 million and $7.0 million in 2023, 2022 and 2021, respectively. Deferred income tax assets and deferred income tax liabilities at December 31, 2023 and 2022, are as follows:
(In thousands) | 2023 |  | 2022
Deferred income tax assets: |  |  |
Pension and other postretirement obligations | $ | — |  |  | $ | 7,535 |
Employee benefits | 5,821 |  |  | 7,558 |
Basis difference in capital assets | 2,131 |  |  | 2,098 |
Inventory | 2,643 |  |  | 3,952 |
Asset write-offs, divestitures and environmental accruals | 1,025 |  |  | 1,075 |
U.S. federal and state NOL and credit carryforwards | 33,247 |  |  | 24,914 |
Capitalized R&D expenditures | 6,543 |  |  | 4,874 |
Other | 2,364 |  |  | 1,220 |
Lease liabilities | 2,711 |  |  | 3,328 |
Interest expense limitation | 2,592 |  |  | — |
Foreign currency translation gain adjustment | 591 |  |  | 1,224 |
Deferred income tax assets before valuation allowance | 59,668 |  |  | 57,778 |
Less: Valuation allowance | 15,078 |  |  | 13,807 |
Total deferred income tax assets | 44,590 |  |  | 43,971 |
Deferred income tax liabilities: |  |  |
Goodwill and identifiable intangibles | $ | 3,392 |  |  | $ | 10,533 |
Property, plant and equipment | 10,330 |  |  | 14,950 |
Foregone tax credits on foreign branch income | 1,880 |  |  | 719 |
Right-of-use leased assets | 2,409 |  |  | 3,147 |
Other | 1,545 |  |  | 722 |
Total deferred income tax liabilities | 19,556 |  |  | 30,071 |
Net deferred income tax assets (liabilities) | $ | 25,034 |  |  | $ | 13,900 |
Amounts recognized in the consolidated balance sheets: |  |  |
Deferred income tax assets (noncurrent) | $ | 25,034 |  |  | $ | 13,900 |
Deferred income tax liabilities (noncurrent) | — |  |  | — |
Net deferred income tax assets (liabilities) | $ | 25,034 |  |  | $ | 13,900 |
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future tax-deductible amounts thereby resulting in the realization of deferred income tax assets the Company had U.S. federal and state tax credits of $16.7 million, net operating loss carryforwards of $16.5 million and a deferred interest limitation of $2.6 million at December 31, 2023. The Company had U.S. federal and state tax credits of $15.3 million and net operating loss carryforwards of $9.6 million at December 31, 2022. The U.S. federal net operating loss and deferred interest limitation can be carried forward indefinitely. The U.S. federal foreign tax credits will expire between 2027-2033 and the U.S. federal research and development tax credits will expire by 2044. The U.S. state carryforwards expire at different points over the next 20 years. Valuation allowances of $12.9 million, $10.3 million and $9.4 million at December 31, 2023, 2022 and 2021, respectively, are recorded against the tax benefit on U.S. federal and state tax credits and net operating loss carryforwards generated by domestic subsidiaries that may not be recoverable in the carryforward period. The valuation allowance for unrealized capital losses from investments and other related items was $0.7 million at December 31, 2022 and 2021. The amount of the deferred income tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carry-forward period change. As circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. Valuation allowances of $2.2 million, $2.8 million and $2.5 million at December 31, 2023, 2022 and 2021, respectively, were recorded against certain deferred state tax assets. A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2021, is shown below:
| Years Ended December 31,
(In thousands) | 2023 |  | 2022 |  | 2021
Balance at beginning of period | $ | 628 |  |  | $ | 648 |  |  | $ | 628 |
Increase (decrease) due to tax positions taken in: |  |  |  |  |
Current period | 25 |  |  | 2 |  |  | — |
Prior period | 23 |  |  | 44 |  |  | 40 |
Reductions due to lapse of statute of limitations | (17) |  |  | (66) |  |  | (20) |
Balance at end of period | $ | 659 |  |  | $ | 628 |  |  | $ | 648 |
Additional information related to unrecognized uncertain tax positions since January 1, 2021 is summarized below:
| Years Ended December 31,
(In thousands) | 2023 |  | 2022 |  | 2021
Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax, other noncurrent liability accounts, or deferred tax assets in the balance sheet) | $ | 659 |  |  | $ | 628 |  |  | $ | 648 |
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | 98 |  |  | 143 |  |  | 48 |
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 757 |  |  | 771 |  |  | 696 |
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $20, $16 and $26 reflected in income tax expense in the income statement in 2023, 2022 and 2021, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 169 |  |  | 149 |  |  | 133 |
Related deferred income tax assets recognized on interest and penalties | (39) |  |  | (34) |  |  | (31) |
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 130 |  |  | 115 |  |  | 102 |
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 887 |  |  | $ | 886 |  |  | $ | 798 |
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2020. The Company anticipates that it is reasonably possible that Federal and state income tax audits or statutes may settle or close within the next 12 months and are not expected to result in a material change in unrecognized tax positions, including any payments that may be made.

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